Market Monitor-James Grant, Editor of "Grant's Interest Rate Observer" - NBR Interview

Nightly Business Report ^ | 5/2/03 | Interview Transcript

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PAUL KANGAS: My guest market monitor this week is James Grant, Editor of the widely followed "Grant's Interest Rate Observer" publication. And welcome back to NIGHTLY BUSINESS REPORT, James.

JAMES GRANT, EDITOR, "GRANT'S INTEREST RATE OBSERVER": Thank you, Paul. It's a pleasure.

KANGAS: You know, it's no secret that you've been bearish on the stock market for some time. But does today's solid rally in the face of the rise in April unemployment suggest to you that a new bull market may be in the making? A lot of people now say this is proof that the October lows were the end of the bear market. Do you buy that?

GRANT: Oh, I mean my view, Paul, is that the bottom of the bear ought to be compellingly cheap and not less cheap than it was at the absurd top. At this moment the S&P is trailing -- selling at 30 times trailing net income and at 18 times Wall Street's perfectly objective and disinterested guess about the future. So it ain't cheap. It really wasn't compellingly cheap in October. And I'm the last person to know whether this is, in fact, it. It strikes me on form it is not.

KANGAS: It's a little bit too expensive at these levels even.

GRANT: Yes, I mean this used to be called a top -- these valuations in the past have been consistent with tops. It doesn't mean that this can't be the occasional big rally. Bear markets are famous for the very seductive rallies that punctuate them.

KANGAS: OK. How do you feel about the bond market here? There's been quite a move into high yielding bonds.

GRANT: I despise the bond market. The bond market appeals to people because they, many think that it is inherently safe. Nothing is inherently safe. Some things are -- everything is safe or not at a price on Wall Street. The bond market is very, very richly priced. Interest rates are very low. The 10-year Treasury is still, I think, at less than four percent, although barely. You are getting no coupon protection, as they call it downtown.

KANGAS: All right, now, you are on record as saying that the U.S. government's public policy is to make sure the dollar depreciates. Well, that's inflationary. Do you think that's good?

GRANT: Well, not only am I on record, Paul, but the Federal Reserve governors are on record, which is even more powerful.

KANGAS: OK.

GRANT: Yes, I mean they have told us in the most explicit and hair raising terms that they have a printing press and they will crank it if they feel the need has arisen. And, you know, the Fed is expanding its own balance sheet at 10 percent year over year, which is risk. They have made no secret of their intention to make the value of the dollars in your wallet and mine cheaper. And I think we ought to take them at their word.

KANGAS: Well, they've certainly made it cheaper against the Euro in recent months, haven't they?

GRANT: They have and, but there is no central bank, I think, on the face of the earth that truly wants its currency to appreciate, which explains my continuing interest in gold.

KANGAS: Yes, last time you were with us, November 8th, you liked gold. And there was one stock that you recommended, only one stock, no specific gold stocks, that stock was Annaly Mortgage (NLY). And it was around $16 at the time and it's now $19.37. That's an appreciation of 16 percent. In the meantime it's been yielding over 14 percent. Do you still like it?

GRANT: Yes, Annaly should not be confused for a Treasury bill. It is a kind of a virtual thrift, a thrift without walls. It holds mortgage securities. It holds them with the idea of generating a yield for the owners. It has succeeded in doing this and maintaining a fairly steady book value or net worth. But it is in the business of speculating in mortgages on a leveraged basis, meaning that it borrows money with which to buy some of them so --

KANGAS: Now, you have a personal interest in this company?

GRANT: I do. I own this thing. I think the world of the management. I am a wholly unobjective observer of the stock. I think the world of it.

KANGAS: And you would buy it even at this level, above $19?

GRANT: Oh, yes. I think that the world is smiling on Annaly because, in my opinion, which is an opinion, the yield curve is going to get steeper, meaning that long rates are going to go up faster than short, and that would be very good for Annaly.

KANGAS: How about the tips, the inflation protected Treasury ? do you feel that's a good investment here?

GRANT: Yes, they've had a terrific run. You know, there's an interesting version of the tips or inflation Indexed securities up north in Canada. And the Canadian tips, I think they call them inflation linked bonds, are much cheaper than ours.

KANGAS: OK. We just have a half a minute left. But you like Annaly. Any gold stocks specifically you like here?

GRANT: Oh, there are some good funds that might be worth looking into.

KANGAS: OK.

GRANT: There is a First Eagle Fund. There is a Tocqueville Gold Fund (TGLDX). Both have done a very good job for their investors.

KANGAS: OK, but still on the market overall you think that it is just generally too high, and anything that yields 14 percent is OK, though?

GRANT: Well, no, no, not anything that yields 14 percent.

KANGAS: Just Annaly. All right, fair enough, Jim. Any last minute thoughts? We have a few seconds.

GRANT: Oh, I'd caution everyone to take a very, very skeptical look at this bond market, Paul. It's become everyone's favorite flavor and rates are very low and there's no protection in case rates go up.

KANGAS: All right, got it straight. Thanks very much for being with us.

GRANT: Thank you, Paul.

KANGAS: My guest market monitor, James Grant, Editor of "Grant's Interest Rate Observer."

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the bottom of the bear ought to be compellingly cheap and not less cheap than it was at the absurd top. At this moment the S&P is trailing -- selling at 30 times trailing net income and at 18 times Wall Street's perfectly objective and disinterested guess about the future. So it ain't cheap.

this used to be called a top -- these valuations in the past have been consistent with tops. It doesn't mean that this can't be the occasional big rally. Bear markets are famous for the very seductive rallies that punctuate them.

In Greenspans new era of structured finanace and unlimited easy money debt creation, I suppose that a new $45,000 SUV seems cheap at 0% down and 0% financing and no payments until '04. People love the idea of a free lunch.

Richard W.

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FYI

Comments and opinions welcome.

Richard W.

[Misterioso]

(Greenspan is a ruling class elitist and closet socialist who is destroying the economy)

"The man who said that he would stop the motor of the world--and did."

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Mr. Greenspan's egomania and need for the limelight coupled with his personal corruption and policalization of the FED and its blind adherence to monetarist policies that only benefit bankers and politicans IS the single biggest threat to the future health of our economy and the well being of every citizen.

Richard W.

[Misterioso]

Maybe he wants to "stop the motor of the world", a la Ayn Rand's
John Galt, in order to bring back the gold standard. But that
would be giving him too much credit. He's a tool of the big banks.

[montag813]

Mr. Greenspan's egomania and need for the limelight coupled with his personal corruption and policalization of the FED and its blind adherence to monetarist policies that only benefit bankers and politicans IS the single biggest threat to the future health of our economy and the well being of every citizen.

HAHAHAHA!!! Yeah forget Al Queda, bomb Greenspan! Perhaps you've had enough to drink, my friend. Wrap your head in tin foil, drink some coffee and get some rest.

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Allen Greenspan has already done more damage to the economy than al Queda could ever hope to in their wildess dreams.

Richard W.